SEABRIDGE SHIPPING LTD v. CEYLON PETROLEUM CORPORATION

015-SLLR-SLLR-2002-V-1-SEABRIDGE-SHIPPING-LTD-v.-CEYLON-PETROLEUM-CORPORATION.pdf


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SEABRIDGE SHIPPING LTD
v.CEYLON PETROLEUM CORPORATION
COURT OF APPEALWEERASURIYA, J.,
DISSANAYAKE, J.
CA NO. 759/86 (F)
DC COLOMBO NO. 89356/MJULY 3, 4 AND 18, 2000 ANDSEPTEMBER 19, 2000
Breach of contract – Adequacy of damages awarded – Objections for awardingof damages resulting from a breach – Is nature of damages compensatory? -In a claim of damages for breach of contract, can compensation for loss ofreputation be considered? English Law – Roman Dutch Law.
The plaintiff-appellant instituted action seeking a judgment in a sum of Rs. 200million arising from a breach of contract for the affreightment of crude oil. TheDistrict Court entered judgment in a sum of Rs. 2.5 million for loss of reputation.
Held:
It is apparent that the plaintiff-appellant has made a claim uponerroneous computation of the measure of damages resulting from thepurported breach of contract.
Nature of damages being compensatory, the affected party is only entitledto such sum as will indemnify him for the loss which he has actuallysuffered. When he has not in fact suffered any loss by reason of thebreach, he is neverthelss entitled to a verdict, but damages recoverablewill be purely nominal.
Damages could, in principle, be recovered in a contractual action forinjury to reputation.
On the material before Court it is difficult to come to a finding that, theplaintiff has actually suffered any loss by reason of the breach, thereforethe damages recoverable would be purely nominal.
APPEAL from the judgment of the District Court of Colombo.
CA
Seabridge Shipping Ltd. v. Ceylon Petroleum Corporation
(Weerasuriya, J.)
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Cases referred to:
Antco Shipping Ltd. v. Seabridge Shipping Ltd. – 1979 – 3 All ER 186.
Addis v. Gramophone Co., Ltd. – 1909 AC 488.
Withers v. General Theatre Co., Ltd. – 1933 KB 536.
L. C. Seneviratne PC with I. S. de Silva, N. Fernando and U. H. K. Wickramasinghefor plaintiff-appellant.
D. S. Wijesinghe PC with Percy Wickremasekera and Sanjeewa Jayawardenafor defendant-respondent.
Cur. adv. vult.
May 3, 2001.
WEERASURIYA, J.
The plaintiff-appellant by its plaint dated 22. 01. 983, instituted action 1against the defendant-respondent seeking, inter alia, a judgment ina sum of Rs. 200 million, arising from a breach of contract for theaffreightment of crude oil for 1983-1984.
The defendant-respondent in its answer whilst denying theexistence of a legally binding contract prayed for dismissal ofthe action.
This case proceeded to trial on 19 issues and at the conclusionof the case learned District Judge by his judgment dated 27. 11. 1986,entered in a sum of Rs. 2.5 million. It is from the aforesaid judgment 10that this appeal has been lodged.
At the hearing of this appeal, learned President's Counsel appear-ing for the plaintiff-appellant submitted that the learned District Judgewas in grave error in restricting the claim of the plaintiff-appellant toRs. 2.5 million.
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CA
Seabridge Shipping Ltd. v. Ceylon Petroleum Corporation
(Weerasuriya, J.)
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The plaintiff-appellant asserted in the District Court that theacceptance by P4 of the plaintiff-appellant's offer comprising of partII of the tender (P3 and P3A) constituted a legally binding contractbetween the plaintiff-appellant and the defendant-respondent. On theother hand, the defendant-respondent contended that P4 constitutedonly a conditional acceptance or a conditional award of thetender and therefore there was no legally binding contract betweenthe parties.5<
The learned District Judge having considered the evidence bothoral and documentary, has come to the conclusion that there wasa legally binding contract between the plaintiff-appellant and defendant-respondent. This finding of the District Judge was not canvassed atthe hearing of this appeal for the reason that the appeal filed by thedefendant-respondent was rejected for having been filed out of time.
According to the terms of the tender 150,000 tons of crude oilhad to be lifted in the first quarter of 1983. However, the defendant-respondent had failed to give lifting instructions before 15. 03. 1983,despite several requests by the plaintiff-appellant for such instructions 60as evident from P8, P9 and P10. Thereafter, by telex dated07. 04. 1983 (P14), the defendant-respondent cancelled the tender.
Learned District Judge has come to a finding that despite thereadiness of the plaintiff-appellant to carry out their obligations underthe contract, the defendant-respondent has committed breach of contract.This finding of the learned District Judge too remains unassailed.
The only issue that arises for consideration in this appealrelates to the question of adequacy of damages awarded to theplaintiff-appellant.
The plaintiff-appellant has claimed a sum of Rs. 200 million as 70damages. It is relevant to note that plaintiff-appellant has not specified
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in the plaint various items on which it claimed damages or on whatbasis the total sum of Rs. 200 million has been founded. Nevertheless,the plaintiff-appellant has sought to describe the various items underwhich damages were claimed mainly through its principal witnessJonathan Priest.
Learned District Judge has itemised the claim for damages broadlyunder three heads:
Damages for making arrangements and positioning thevessel Alva Bay and the expenses incurred thereof.
Damages for loss of profits, and
Damages loss of reputation.
The learaned District Judge has held that plaintiff-appellant haswaived its claim under item (1).
It has been recorded that learned Counsel appearing for theplaintiff-appellant as having stated to Court that he is not claimingthe expenses incurred in positioning the Alva Bay which is set outin X2 (vide proceedings at pages 457 and 461). The reason for notrelying on X2 appears to be that expenses relating to item I is reflectedin XI.
Learned District Judge held against the plaintiff-appellant in respectof item (2) on the basis that it has failed to prove the claim fordamages.
The document produced marked X1 was the sole means ofproof adduced by the plaintiff-appellant in support of its claim forRs. 200 million.
However, following glaring errors have been observed in thebreakdown of the plaintiff-appellant's claim for damages.
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Seabridge Shipping Ltd. v. Ceylon Petroleum Corporation
(Weerasuriya, J.)
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The earnings have been estimated for 9 voyages of AlvaBay (mother vessel) amounting to US Dollars 14,151,037whereas voyage costs during the contract have been 100computed for 7 voyages amounting to US Dollars 9,594,943.
The details of rates appearing in X1 relating to the worldscale rates were inconsistent with rates contained in tenderoffer P3. (vide page 552 of the proceedings).
There was confusion relating to contract quantity in page 1of X1 and page 2 of X1 which read as 1.7 million long tonsand 1.8 million long tons, respectively. Both these quantitiescontradict tender offer P3 which provides for a quantity of1.05 million long tons plus or minus 5%. Tender offer (P3)contains no reference either to a quantity of 1.7 or 1.89 110million long tons (vide pages 391, 588 and 589 of theproceedings).
The computation of a quantity of 1.35 million long tons ata world scale rate of 112.5 is erroneous as the tender offer(P3) stipulates that the world scale rate 112.5 is for a quantityof 1.05 million long tons.
The consumption of fuel restricted to 65 tons was foundedto be incorrect, the correct amount being 143 tons of fuelper day.
The number of lightering trips, daughter vessel would be 120required to make, for the purpose of collecting oil from themother vessel and discharging the oil in the Port of Colombo,were shown to be wrong, in that 63 lightering trips wererequired as against 43 as shown in X1. (vide pages 561and 565 of the proceedings).
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(a) the cost of fenders,
the cost of lightering Masters' wages and expenses,
the cost of anti-pollution equipment,
cost of marine lubricant and water, and
•(e) cost of the hire of Alva Bay.130
were omitted in the preparation of X1. Priest conceded that cost ofthe hire was US Dollars 150,000, a month.
It is to be observed even the revised XI cannot form a correctreflection of the true state of loss of profit as the basis of preparationwas misconceived by working on a quantity of 1.89 million long tons.
It would appear that the defendant-respondent has never acceptedthat the quantity that would be carried was 1.89 million long tons.
The purpose of the suggestion by the defendant-respondent that USDollars 13,742,662 seems to be the earning was to show that Priesthad not adopted the rates stipulated in the tender offer (P3) in 140calculating the gross earnings. Furthermore, this revised XI has omittedthe cost of fenders, lightering Masters' Wages and expenses, the costof antipollution equipment, the cost of marine lubricants, the cost offresh water and the charter costs of Alva Bay.
Learned President's Counsel sought to emphasize that documentsmarked D65 and D66 were produced in evidence subject to proofand that the defendant-respondent had failed to prove them but thelearned District Judge had relied on D65 in arriving at his finding.
It must be noted that despite a reference to certain contents of D65,learned District Judge has not sought to rely solely or mainly on D65 isofor his finding that plaintiff-appellant would have suffered a loss onthis contract of affreightment.
Learned President's Counsel appearing for the plaintiff-appellantfurther contended that even if documents marked XI and X2 weredisregarded, learned District Judge ought to have acted on thetestimony of Priest to arrive at a favourable finding on the measureof damages resulting from loss of profit.
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Seabridge Shipping Ltd. v. Ceylon Petroleum Corporation
(Weerasuriya, J.)
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In this regard, it is to be borne in mind that Priest's evidence wasconfusing and uncertain relating to the details of computation of lossof profit. He was shown to be without sufficient experience in the 160assessment of damages and the document XI was hastily preparedafter his arrival in Sri Lanka for the purpose of giving evidence.
His admission that Counsel had made nonsense of XI and that hewas compelled to revise XI in the light of cross-examination were proofof the fragile nature of his evidence.
The fundamental glaring error he had committed in preparing XIwas the calculation effected on the basis of earnings from 9 voyagesand computing costs for 7 voyges. This had resulted in a series ofother erroneous calculations relating to the cost of fuel, charteringanother vessel, port charges, bunkering, increase of lightering trips, 170tug costs, etc. Besides, the omissions relating to costs of fenders,lightering masters' wages and expenses, anti-pollution equipment andmarine lubricant and water have aggravated the confusion resultingfrom the testimony of Priest.
It is in this background that one has to examine the answer byPriest in the affirmative to the question (at page 553 of the brief) thatthe ultimate result of the contract was a loss of US Dollars 1,782,737.
It would be apparent that the plaintiff-appellant has made a claimupon erroneous computation of the measure of damages resultingfrom the purported breach of contract.180
It is also relevant to observe that Nigel Shaw in his testimonyappeared to suggest that profit should be something like US Dollars1.50 per long ton. This statement seem to suggest that the claimsought is merely speculative. In any event, a speculative figure ofUS Dollars 1.50 cannot form the basis for a proper computation inthe absence of a definite quantity forming the subject-matter of contract.
It is well to remind that tonnage of crude oil which the plaintiff-appellantclaimed, had to be transported was uncertain inasmuch as three
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different quantities, viz. 1.7 million, 1.26 million and 1.89 million tons,were claimed as seen from the evidence of Priest.19C
The following passage from Anson's Law of Contract (1979 editionby A. G. Guest at page 550) would illustrate the objectives for awardingof damages resulting from a breach:
"Damages for breach of contract are given by way of com-pensation for loss suffered and not by way of punishment for wronginflicted. The measure of damages is, therefore, not affected bythe motive or manner of breach "Vindicative or exemplary damageshave no place in the law of contract".
Therefore, it would be clear that nature of damages being com-pensatory the affected party is only entitled to such sum as will 200indemnify him for the loss which he has actually suffered. Where hehas, not in fact, suffered any loss by reason of the breach, he isnevertheless entitled to a verdict but damages recoverable by himwill be purely nominal, (vide Anson's Law of Contract 1979 edition,page 549).
Jonathan Priest and Nigel Shaw who testified on behalf of theplaintiff-appellant conceded that the proper method of computation ofdamages was the method laid down in the case of Antco ShippingLtd. v. Seabridge Shipping Ltd1).
Lord Denning set out the method of assessing or computing loss 210of profit in the following terms:
"Eventually, the question fell to be decided; what damages werethe owners entitled to as a result of the original repudiation bythe characters? The measure would be this. First, calculate theamount of freight which the . .vners would have received if the
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Seabridge Shipping Ltd. v. Ceylon Petroleum Corporation
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charter party had been fulfilled by carrying the oil from a Medi-terranean port (other than Libya) to the Caribbean. Second, cal-culate the credit which the owners should have given in one oftwo ways: either by (i) the actual amount which the owners madeby putting the vessel to profitable use with the Bunge organization 220or (ii) by taking the market rate of freight which the owners couldhave made by letting the vessel out on the market."
Priest in his evidence conceded that the market rates for freightwas available monthly from an association called AFRA (AverageFreight Rates Assessment) while Shaw admitted that the market ratefor freight can be easily determined and that it was possible toprecisely state the market rate for the period of February or March,1983, to April, 1984. Thus, for the purpose of computing damagesthe market rate was available to the plaintiff-appellant but failed toplace that in evidence. Furthermore, Priest conceded that Alva Bay 230had actually earned freight between May, 1983 and December, 1983,but these figures of actual earnings were not offered as evidence.
Therefore, learned District Judge seems to be justified in statingthat the Court is without this essential evidence and therefore he isunable to assess any damages in favour of the plaintiff-appellant.
The learned District Judge had refused to accept XI as a documentwhich reflects a true assessment of measure of damages from thepurported breach of contract. He has refused to act on the oraltestimony of Nigel Shaw and Jonathan Priest on the assessment ofdamages resulting from loss of profit.240
However, the learned District Judge has awarded the plaintiff-appellant damages resulting from the loss of reputation.
It now remains to consider this question.
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Learned President's Counsel appearing for the defendant-respond-ent contended that both the Roman Dutch Law as well as the EnglishLaw, clearly lay down the principle that in a claim for damages forbreach of contract, no compensation for loss of reputation can beconsidered.
The following passages from Anson's Law of Contract (1979 edition,pages 551 and 553) stipulate the rules applicable on the question 250of loss of reputation:
"Damages cannot, in principle, be recovered in a contractualaction for injury to reputation . . .
An exception, however, exists in the case of a banker whorefuses to pay a customer's cheque when he has in his handsfunds of the customer to meet it. If the customer is a tradesman,he can recover in respect of any loss to his trade reputation bythe breach."
The rationale behind this rule seems to be that damages for injuredfeelings are only recoverable in the special cause of actions 260for breach of promise of marriage which though technically basedon contract are in many respects more closely analogous to actionin tort, (vide Addis v. Gramophone Co., Ltd.(2)).
In this regard it is vital to note that a distinction must be madebetween a breach of contract which causes injury to a reputation whicha person already possesses and one which deprives him of anopportunity, to which the contract entitles him, of enhancing hisreputation. So, an actor whose contract entitles him to be advertisedas playing a leading part at a well-known music hall, may recoverdamages for the loss of publicity though not for any injury that his 270failure to appear may cause to his existing reputation (Withers v.General Theatre Co., Ltd.<3>). (vide Anson's Law of Contract, page 552).
CA
Seabridge Shipping Ltd. v. Ceyton Petroleum Corporation
(Weerasuriya, J.)
137
In the light of the above rules of law, it seems to me that thelearned District Judge has erred in awarding damages in a sumof Rs. 2.5 million for loss of reputation.
On the material placed before the District Judge by Nigel Shawand Jonathan Priest, it was difficult to come to a finding that plaintiff-appellant had actually suffered any loss by reason of the breach.
Therefore, the damages recoverable by the plaintiff-appellant wouldbe purely nominal.280
On a consideration of the totality of the circumstances, award ofa sum of Rs. 2.5 million for loss of profit seems justifiable. Therefore,
I direct that plaintiff-appellant is entitled to recover a sum of Rs. 2.5million as damages, on account of loss of profit resulting frombreach of the contract.
Subject to the above variation relating to the item under whichdamages were awarded, this appeal is dismissed with costs.
DISSANAYAKE, J. – I agree.
Appeal dismissed subject to variation relating to the item under whichdamages were awarded.